Finance Bill

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Ruth Kelly: I beg to move amendment No. 520, in

    schedule 34, page 473, line 31, leave out 'and (5) or paragraph' and insert 'or'.

The Chairman: With this it will be convenient to discuss the following:

Government amendments Nos. 521 to 523.

Amendment No. 393, in

    schedule 34, page 475, line 7, after 'scheme', insert

    'or a contractual right under his contract of employment with a sponsoring employer'.

Government amendment No. 524.

Ruth Kelly: Pensions receive favourable tax treatment to encourage people to save for retirement. The deal between the Government and the pension saver is that that favourable tax treatment is conditional on using most of the savings built up in that way to generate retirement income, and not for other purposes. As part of the reform of tax rules for pensions, we intend to set the minimum age at which tax-privileged pensions can be drawn at 55 from 2010. That minimum benefit age will apply to all pensions that qualify for tax relief. Moving the minimum benefit age to 55 is not designed to prevent people from stopping work when they are younger than 55, if they can afford to do so using resources other than

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pensions, but they will not be able to use pensions built up with tax relief until the age of 55.

It would, of course, be unfair to introduce such a change in a way that cut across people's contractual rights to take an occupational pension at an earlier age. People with such rights may well have planned for their future on that basis, or even taken redundancy from their employer in the expectation that their occupational pension would become payable before they reached the age of 55. Because of that, provisions in the schedule protect the rights of employees in occupational pension schemes to retire before 55, provided certain conditions are met: first, that the right was in place before 10 December 2003 and, secondly, that the right is an absolute right and not subject to any conditions such as the consent of the employer.

Amendments Nos. 520 to 522 are tidying-up amendments that correct and clarify references to minimum pension age. Following representations on the December 2003 consultation document, we are now proposing a relaxation of the original proposals.

Amendments Nos. 523 and 524 would extend the protection to individuals who join their occupational pension scheme after 10 December 2003 but before 6 April 2006—A-day. They will be able to retire at the scheme's minimum pension age or normal retirement age provided that on 10 December 2003 the occupational pension scheme offered such a date to all existing members.

Amendment No. 393 is also about rights to take an early pension. We have always been clear that the contractual rights under discussion are those conveyed by membership of an occupational pension scheme rather than by a contract of employment, on the basis that contractual rights in an occupational pension scheme apply to all members, while rights in a contract of employment apply on an individual basis at the discretion of the employer. Those latter rights could, for instance, be used to sugar a redundancy programme, or finesse the retirement package of senior executives. We see no reason to give protection to such rights.

The provisions in schedule 34 and our amendments are all in line with the Government's policy to encourage greater participation in the labour market by older workers and protect existing contractual rights to draw a pension from the age of 50. I therefore commend them to the Committee. I hope that, in view of the generous proposals we are putting forward, the hon. Gentleman will not choose to press his amendments.

Mr. Flight: I am glad to note the Government's tidying-up of some aspects of who will and will not be affected by the change of the minimum retirement age from 50 to 55.

Amendment No. 393 is designed to deal with a situation that the Government have not addressed and towards which the Financial Secretary has stated that they are not sympathetic. The concession, as defined in schedule 34 and the Government amendments, assumes that all such rights to retire at 50 will be written into the pension scheme. They may arise in the contract of employment, however. The employer has

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the discretion to allow early retirement from the age of 50 but, as a matter of contract, may have confirmed that, in the event of redundancy, benefits can be taken without reduction from the age of 50. Our amendment seeks to bring that situation within the protected territory.

If someone were fired at 50—not on the ground of ageism, I hope—and they have been led to understand that, if that happened, they would have the right to take a pension at that age, it is only fair that they be included in the protection provided. I was not totally clear about the Financial Secretary's reaction to that, so I ask for her clarification.

Ruth Kelly: We have always been clear that the contractual rights being protected are those conveyed by membership of an occupational pension scheme. The hon. Gentleman refers to a discretionary right granted by an employer as part of a redundancy package. That is not the sort of right that we seek to protect. Does he really think that such a situation should be protected under the transitional arrangements? The employer could use those rights to sweeten a redundancy package or as part of a remuneration package of a senior executive. We sought to exclude such a situation from our proposals.

10.30 am

Mr. Flight: I accept to some extent what the Financial Secretary has said, but the Government ought to consider the other side of the coin. From the perspective of the employee, he has been led to understand that, if the employer fires him, he will be able to draw his pension at the age of 50. It will be a nasty experience if he gets fired and subsequent legislation has changed that situation.

I hope that the Government think again on that point and consider whether they can craft something that avoids the exploitation that they are seeking to avoid but deals fairly with individuals in that situation. I cannot see the point of principle against dealing fairly with individuals in that situation.

Ruth Kelly: I do not quite understand the cut-off point in the hon. Gentleman's proposal, or why he thinks that, if someone is fired, it is appropriate to take a pension at the age of 50, rather than at a different age. We have, as a point of principle and Government policy, suggested that the minimum retirement age be raised to 55, and we see no reason to treat individuals in the unfortunate situation that he described any differently merely because they have been fired. Presumably, their employer would offer individuals in that situation a different redundancy package in future.

As a point of principle, the Government are increasing the minimum retirement age to 55. It is on that basis that we will be able to offer many other benefits, such as flexible employment. Where there is a clear contractual right to draw a pension earlier, we will seek to preserve that right in the legislation.

Mr. Flight: I am surprised that the Financial Secretary is not more sympathetic to the point that I am making. It is simple. It arises where a person has

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been a member of a business and its pension scheme for a long period. While there is no specific rule in the pension scheme, the person has been told by the employer that, in the event of being fired at 50, the employer will allow retirement at that age. It is common to have such an understanding. In that situation, it would be wholly wrong to blast in and say, ''Hard luck, mate.''

I think that the Financial Secretary is wrong to assume that there will automatically be redundancy payments to make up for that. The business may not be able to afford them. Therefore, unless the Government have something to offer to deal with those situations, where appropriate, we will want to vote on the amendment.

Amendment agreed to.

Amendment made: No. 479, in

    schedule 34, page 474, line 28, leave out 'on 5th April 2006' and insert

    'at any time (treating the references there to 5th April 2006 as to that time)'.—[Ruth Kelly.]

Mr. Flight: I beg to move amendment No. 392, in

    schedule 34, page 474, line 28, at end insert—

    'Pre-1989 individuals

    20 (1) This paragraph applies to any individual who was on 5th April 2006 a person in relation to whom section 590C of ICTA (earnings cap) did not have effect (''a pre-1989 individual'') in relation to the pension scheme under which the arrangement was made (''the pre-1989 scheme'').

    (2) Notwithstanding anything else in this Act, no charge to income tax will arise in respect of benefits paid to in respect of a pre-1989 individual under the pre-1989 scheme except to the extent that a charge to income tax would have arisen in any event.'.

Mr. Flight: This is the amendment regarding which I made some comments when we debated clause 269. It is designed to permit continued grandfathering for all people in pre-1989 schemes. The Financial Secretary was silly to say, ''We can't possibly do that, or our simplification wouldn't work.'' That seems wrong. The new simplification would go ahead, but a fair, non-retrospective provision would be made available for the relatively small number of people who continue to be members of pre-1989 schemes that were grandfathered.

I have already said that, particularly in respect of pension saving, the provision is in principle retrospective. It is unfair suddenly to say to people, many of whom will be reasonably close to retirement, ''I'm sorry, mate. You were grandfathered back in 1989, but we are putting an end to that. The effect will be negative as long as there are no more contributions to your scheme from here on. If there are, you will be caught.'' Therefore, the provision cuts off the employer's contractual promise to go on paying into the scheme until the employee retires. No doubt the Government's view is that the provision is mostly to do with fat cats. The view may be, ''They don't have a bad deal anyway, so what the hell? They don't matter.'' It is not our job to protect fat cats on principle.

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